Question

Describe the HR impact of cost containment techniques on the firm.

Answer 1

The cost containment exercise involves curtailing expenses from many functions of the organisation. Though the objective of such exercise is to make the organisation more lean and cost effective and hence more competitive, it is bound to have adverse impact on the human resources, hence needs careful consideration.

A cost cutting initiative that might range from reduction of perks and privileges to curtailment of salaries and benefits, each having different degree of effect on the people who are affected. While discontinuation of that fortnightly excursion or capping the number of free coffees a day might not be taken that seriously as straightaway reduction of wages, which will be taken on a much serious note, and negatively impact the motivation and morale of the employees.

Therefore, HR is faced with an important task of maintaining transparency of the processes and maintaining trust among the employees, before a cost cutting decision is taken. The employees should be communicated and convinced of the need of such an initiative, so that they can stand with the company HR, and the initiative can be executed without causing major dissent among the employees, who know that it will help the company to be more sustainable in the long run and is in everyone's interests. Care should be taken to cut down on non monetary type of expenses ( freebies, privileges etc.) rather than direct wage cuts, as the later will impact more.